Russia’s economy on rise despite sanctions

MOSCOW 

In the face of persistent sanctions, Russia’s economic landscape at the year’s end presents a compelling narrative of resilience and growth.

Despite the challenges posed by external pressure and earlier negative forecasts, Russia’s GDP growth in 2023 is expected to be 3.5%, Russian President Vladimir Putin said during a live broadcast on Dec. 14 called “Results of the Year with Vladimir Putin.”

Putin also said that foreign debt is decreasing, which “also indicates macroeconomic stability, financial stability.” According to the Russian Central Bank, government debt has been reduced from $46 billion to $32 billion and private foreign debt has also decreased from $337 billion to $297 billion.

The country’s industrial and manufacturing output is steadily increasing at 3.6% and 7.5%.

Fixed capital investment rose by 10% in 2023, which “indicates there will be sustainable growth in the medium term,” he said, adding “investors (will) provide funding, production will expand and new jobs will be created.”

Profits at enterprises surged by 24%, with banks projected to earn over 3 trillion rubles ($33.9 billion), while salaries are on the rise and unemployment stands at a current low of 3%.

International financial institutions including the International Monetary Fund, while giving more modest figures, also confirm that Russia’s economy is on the rise despite the unprecedented amount of sanctions imposed on the country amid its “special military operation” in Ukraine which started in February 2022.

“The successes of the Russian economy in the face of the most severe, unprecedented sanctions in the history of mankind turned out to be a surprise to all economists of the world. I think that even the Russian government itself did not expect such a turn,” Sergey Markov, director of the Institute of Political Studies, a Moscow-based think tank, and a former adviser to President Putin, told Anadolu.

Internal and external reasons for Russian economy’s resilience

According to Markov, there are “internal” and “external” reasons that contributed to Russia’s resilience to Western sanctions.

Among the “internal” factors, he cited Russia’s wealth in natural resources. The country extracts or has reserves of all or almost all known resources on its territory.

Also, the country has well-developed industries in all economic sectors. Generally, the country can produce everything necessary itself, although it is expensive to produce some types of products and it used to be cheaper to buy them, he said.

Russia’s agriculture sector produces enough food for domestic consumption and exports, and at the moment, the animal husbandry sector is mainly the only weak point, he said.

“Russia also turned out to be well-developed in technologies. It is one of the very few countries that has its own search engine, Yandex, its own social networks, VK and OK, mail agents and so on and so forth,” he outlined.

Russia’s big population makes the country an attractive market; domestic industries have to work at full capacity to feed, clothe and accommodate nearly 146.5 million people, he noted.

“Russia has its own well-developed financial system, which ensured the circulation of money flows when the country was cut off from global payment systems,” he said.

The government’s actions also contributed to mitigating the consequences of the sanctions blow, he said.

As for the external reasons, he said the main one is that the world has changed more than people thought and the role of the West turned out to be not so important, he said.

“And since Russia has good relations with many other countries, this allowed Russia to get out of these economic sanctions with less damage,” he emphasized.

Another external reason is that Russia sells goods that only very few countries in the world possess, including energy resources, which ensures income in foreign currencies necessary to buy technologies and goods that are not produced domestically, he said.

Challenges

Markov said the main challenge that the Russian government faces is further strengthening the economy and making it impenetrable to sanctions in the future as the pressure most likely will continue to grow.

Besides, it is necessary to fill the niches formed as a result of the departure of Western companies, and this task demands investments and technological re-equipment.

Also, currently, the economy is supported by the defense industry. The authorities have to draft a plan of transition to a peaceful time when there will be no state defense orders.

Russia also suffers from a shortage of workers. This problem worsened after mobilization. Many men, the main working-age population, went to the front, and migrants do not want to come to the country because of fear of mobilization, Markov highlighted.

The shortage of workers forced enterprises to raise salaries, which was difficult for many of them, and the higher salaries led to higher spending and the rise of inflation, he noted.

Also, there are security concerns amid drone attacks and acts of sabotage against Russian companies, he said.

“But in general, from an economic point of view, the Russian government is positive and expects that economic growth will be significantly higher than in all EU countries,” he said.

In December, head of the Russian Central Bank, Elvira Nabiullina, was named “the Destroyer of the Year” by the Politico media outlet for mitigating the consequences of unprecedented Western sanctions against the Russian financial sector.

Commenting on winning the nomination, Nabiullina said the Russian economy is quickly restructuring amid sanctions and this became possible due to its market character.

“Of course, there is a temptation to think that we went through 2022 so well and now we are, as they say, knee-deep in the sea. But we must be prepared for increased sanctions pressure,” she stressed.

• Russia
• Russian economy
• Sanctions
• Sergey Markov